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Tim Cook Dropped Some Tantalizing Hints About Apple's Video Plans

Apple is gearing up to battle Netflix and Amazon with its forthcoming streaming service, and CEO Tim Cook this week teased what that may look like. Original video could draw $10 billion in three years, one analyst predicted.

Apple (AAPL) is bulking up on video, and CEO Tim Cook dropped some hints this week on what that may look like.

On Apple's Tuesday earnings call, part of a market-pleasing report that pushed its market cap past the $1 trillion mark this week, Cook spent time talking up gains made by the Apple TV and tvOS, and said he feels "really good" about Apple's plans for a new video offering, although he declined to disclose many details.

Whatever it is, Apple is investing significantly; it's reportedly earmarked $1 billion for content acquisitions and programming for 2018. According to a recent report, Apple's forthcoming video streaming service could bundle together video, music and magazine articles into a single subscription, competing with Netflix (NFLX) and Amazon's (AMZN) Prime Video at a comparable price point.

It's not known when Apple will roll out the new service, but the company has been on a deal-signing spree this year, inking agreements with high-profile talent including J.J. Abrams and Oprah Winfrey. Apple is expected to announce a new line of iPhones this fall, at which time we could also learn more about its plans for video.

Pressed for more detail on Apple's multi-year deal with Oprah, Cook offered few specifics other than saying "we could not be happier in working with Oprah." But he said that cord-cutting -- the trend of people canceling their cable service in favor of streaming subscriptions -- is accelerating rapidly, hinting at some sense of urgency as competition in the space heats up. In addition to incumbents such as Netflix and HBO, Disney (DIS) plans to launch its own streaming service in 2019 and others such as Alphabet's (GOOGL) YouTube have been tinkering with video subscriptions.

"All the forcing functions here from the outside all point to dramatic changes speeding up in the content industry, and so we're really happy to be working on some of them, but we're just not ready to talk about it in depth today," Cook said.

In addition to the Oprah deal, Cook touched on Apple's hiring of two media executives last year who have been working on a yet-unnamed project, Zack Van Amburg and Jamie Erlicht, former co-Presidents of Sony Pictures Television, who joined in June 2017.

"Theyhavebeenherenowforseveralmonthsandhavebeenworkingonaprojectthatwe'renotreallyreadytoshareallthedetailsofityet,butIcouldn'tbemoreexcitedaboutwhat'sgoingon there," Cook said on the call, adding that "we've got great talent in the area that we've sourced from different places and feel really good about what we will eventually offer."

Apple has reportedly set a budget of $1 billion for programming and acquisition of original video.

At the time Amburg and Erlicht were hired, Ehrlicht noted that "we want to bring to video what Apple has been so successful with in their other services and consumer products -- unparalleled quality."

In a June research note, RBC Capital Markets analyst Amit Daryanani wrote that if combined with their existing Apple Music offering, original content could draw an annual run rate of $10 billion to $12 billion in three years. Apple Music has an estimated 42 million subscribers, which could grow to 100 million or more in that time if bundled with video, he wrote.

Apple Music, iTunes, iCloud and other software-based products are lumped together as 'Services' in Apple's earnings rubric, and together they represent a growing slice of Apple's overall revenue at $9.3 billion last quarter. Bullish analysts such as Needham's Laura Martin view content, including subscription offerings, as another means to entice and retain users to Apple's valuable ecosystem.

"We believe that consumers think of Apple products as an integrated ecosystem of content and hardware, which lowers churn and raises revenue per user," Martin wrote in a note this week.

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